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Hourly Electricity Demand in Italian Market

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  • Simona Bigerna
  • Carlo Andrea BOLLINO

Abstract

In the existing literature only recently there has been attention to consumer demand for electricity in organized markets. In this paper we assume a theoretical model of demand behavior and we estimate a complete system for hourly electricity demand. We use individual demand bid data in the Italian Power Exchange (IPEX). The novel contribution of this paper is twofold. Firstly we construct a theory based behavioral model of hourly electricity demand for agents acting in the Italian market; secondly we measure empirically demand behavior at hourly level, i.e. expenditure and price elasticities directly from consumer behavior. Econometric estimation of a multi-stage demand system weakly separable allows us to identify three robust results, showing that: (i) own price elasticity varies significantly with time of the day as well as according to the level of equilibrium price, (ii) hourly electricity demand exhibits both complementarity and substitutability characteristics, (iii) unconditional elasticity values are different from conditional ones, thus confirming validity of multistage model. On the basis of econometric estimations we can ascertain that elasticity tends to be generally higher when hourly price peak. Considering price elasticity, electricity exhibits both substitutability and complementarity characteristic in different hours of the day, the former during the day and the latter during the night. Considering expenditure elasticity, electricity appears to be a normal good during night time and a luxury good during day time. Policy implications are interesting, because appropriate regulation can favor consumer behavior adjustment shaving consumption away from peak prices, thus yielding lower aggregate equilibrium expenditures because consumers can shift more easily their consumption from peak price hours to off peak price. So we advocate reforming the actual dual administered price structure to introduce real time pricing options for Italian consumers.

Suggested Citation

  • Simona Bigerna & Carlo Andrea BOLLINO, 2013. "Hourly Electricity Demand in Italian Market," Quaderni del Dipartimento di Economia, Finanza e Statistica 121/2013, Università di Perugia, Dipartimento Economia.
  • Handle: RePEc:pia:wpaper:121/2013
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    References listed on IDEAS

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    1. Simona Bigerna and Carlo Andrea Bollino, 2014. "Electricity Demand in Wholesale Italian Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    2. Labandeira, Xavier & Labeaga, José M. & López-Otero, Xiral, 2012. "Estimation of elasticity price of electricity with incomplete information," Energy Economics, Elsevier, vol. 34(3), pages 627-633.
    3. Cummings, Ronald G & Harrison, Glenn W & Rutstrom, E Elisabet, 1995. "Homegrown Values and Hypothetical Surveys: Is the Dichotomous Choice Approach Incentive-Compatible?," American Economic Review, American Economic Association, vol. 85(1), pages 260-266, March.
    4. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, April.
    5. Maskin, Eric & Tirole, Jean, 1990. "The Principal-Agent Relationship with an Informed Principal: The Case of Private Values," Econometrica, Econometric Society, vol. 58(2), pages 379-409, March.
    6. Massimo Filippini, 1999. "Swiss residential demand for electricity," Applied Economics Letters, Taylor & Francis Journals, vol. 6(8), pages 533-538.
    7. Andrés Ramírez Hassan, 2012. "A Multi-Stage Almost Ideal Demand System: the case of beef demand in Colombia," DOCUMENTOS DE TRABAJO CIEF 009687, UNIVERSIDAD EAFIT.
    8. Peter C. Reiss & Matthew W. White, 2008. "What changes energy consumption? Prices and public pressures," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 636-663.
    9. David L. Edgerton, 1997. "Weak Separability and the Estimation of Elasticities in Multistage Demand Systems," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(1), pages 62-79.
    10. Kuo S. Huang & Sophia Wu Huang, 2012. "Consumer welfare effects of increased food and energy prices," Applied Economics, Taylor & Francis Journals, vol. 44(19), pages 2527-2536, July.
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    Cited by:

    1. Andrey Krasovskii & Nikolay Khabarov & Michael Obersteiner, 2014. "Impacts of the Fairly Priced REDD-based CO2 Offset Options on the Electricity Producers and Consumers," Economy of region, Centre for Economic Security, Institute of Economics of Ural Branch of Russian Academy of Sciences, vol. 1(3), pages 273-288.
    2. Krasovskii, Andrey & Khabarov, Nikolay & Obersteiner, Michael, 2016. "Fair pricing of REDD-based emission offsets under risk preferences and benefit-sharing," Energy Policy, Elsevier, vol. 96(C), pages 193-205.

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